He believes the government has little room for fiscal stimulus and is likely to prioritize capital spending and rationalization of customs duties, while major changes to capital gains tax appear unlikely.Singh also discusses earnings trends, the evolving commodity theme and how investors should approach mid and small caps in the current market environment. Edited excerpts –
Q) Thank you for taking the time. It seems there is some nervousness on D-Street – is it budget-related or geopolitical concerns? How should investors decode?
A) Financial institutions don’t just have India to invest in. By mid-2024, India’s valuations were 80 to 90% higher than other emerging markets. After that, we saw earnings growth slow, and other economies benefited, either because of participation in the AI ​​theme or because China recovered after the stimulus. So global capital followed there.
Now growth is coming back in India and the valuation premium has fallen to 50%. It is still a premium, but much lower than in 2024.
We have reached a point where India will get its fair share if emerging markets start to get money flowing – which is possible given the uncertainty in the US macro environment.
Now an FPI doesn’t have to sell India to buy China. India will not get a disproportionate share of emerging flows, but sales intensity may decline.
We look much better than we did a year and a half ago. Appraisals were expensive. Are we at absolute bottom valuations where one should invest 100% in shares? I wouldn’t say that.
But we are much better positioned than we were in July 2024. Much of the thematic noise in manufacturing, defense and capital goods has disappeared.
Q) What are your expectations for the 2026 budget from a market and economic perspective?
A) The budget offers limited space to create further budgetary impulses. So it will likely involve a sensible mix of capital investments and a likely rationalization of the customs duty structure.
It is unlikely that there will be any major changes to capital gains tax. Given that the budget targets will now be based on long-term debt/GDP targets, it will be interesting to witness the changes in budget priorities.
Q) There are two precious metals that have not lost their luster even in 2026: gold and silver. We’ve seen some volatility: how should you play with this theme?
A) While gold and silver remain important, focusing solely on these two commodities can be limiting. Today’s world faces geopolitical tensions and supply disruptions that impact a much broader range of commodities.
Commodity price movements are no longer limited to gold, silver or crude oil, but also extend to metals and other commodities.
Investors should therefore look beyond just gold and silver and consider a wider range of commodities when approaching this theme.
Q) Which sectors are likely to remain in the spotlight in the Budget?
A) We could see some focus on reforms to the customs structure, which would also be in line with recent developments on the FTA.
There could be some focus and fiscal support for SMEs and in sectors that have been negatively affected by the ongoing tariff wars involving the US.
Power sector reforms are on the agenda for the budget session and specific provisions in this regard could be included in the budget.
Q) The December quarter results are on their way. What is your opinion on the profits so far?
A) Growth has just started in several sectors and the earnings season was in line with or better than expected, including in challenging sectors such as IT services. So far, we have not seen a downward earnings revision.
The VAT cuts have been structurally positive, but the revival of demand is likely to happen in the 2027 financial year and not really this year. In the past quarter we saw the first signs of VAT cuts in the insurance and automotive sectors.
Last year, Nifty 50’s earnings per share growth was around 3%. This year this will probably be between 7 and 8%. And next year (financial year 2027) expectations are around 15%.
Q) In the Indian technology sector, recruitment has taken a back seat. What is your view on the services sector amid the depreciation of the rupee, the rise of A,I and the global slowdown?
A) IT downgrades have stopped even though there are no strong upgrades. There will be no hindrance to the profitability of IT companies. That is a relief, but not a growth engine.
Q) How do you play the small & midcap theme?
A) The valuation premium for mid and small caps (relative to Nifty50) has fallen significantly since mid-2024. This offers opportunities to selectively re-enter the mid/small cap segments.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by experts are their own. These do not represent the views of the Economic Times)
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